Is It Worth Considering Yongxing Special Materials Technology Co.,Ltd (SZSE:002756) For Its Upcoming Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Yongxing Special Materials Technology Co.,Ltd (SZSE:002756) is about to go ex-dividend in just 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Yongxing Special Materials TechnologyLtd's shares on or after the 10th of October, you won't be eligible to receive the dividend, when it is paid on the 10th of October.

The company's next dividend payment will be CN¥0.50 per share, on the back of last year when the company paid a total of CN¥4.00 to shareholders. Based on the last year's worth of payments, Yongxing Special Materials TechnologyLtd stock has a trailing yield of around 6.0% on the current share price of CN¥41.61. If you buy this business for its dividend, you should have an idea of whether Yongxing Special Materials TechnologyLtd's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Yongxing Special Materials TechnologyLtd

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Yongxing Special Materials TechnologyLtd paid out more than half (59%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 85% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that Yongxing Special Materials TechnologyLtd's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Yongxing Special Materials TechnologyLtd has grown its earnings rapidly, up 39% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Yongxing Special Materials TechnologyLtd has delivered 52% dividend growth per year on average over the past eight years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Yongxing Special Materials TechnologyLtd an attractive dividend stock, or better left on the shelf? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that Yongxing Special Materials TechnologyLtd is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. Overall, it's hard to get excited about Yongxing Special Materials TechnologyLtd from a dividend perspective.

In light of that, while Yongxing Special Materials TechnologyLtd has an appealing dividend, it's worth knowing the risks involved with this stock. To that end, you should learn about the 3 warning signs we've spotted with Yongxing Special Materials TechnologyLtd (including 1 which is potentially serious).

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.